How much did Tiger Woods cost shareholders?

Oh why not, one more before I really take a break from blogging. From Will Ambrosini, Christopher Knittel and Victor Stango from UC Davis have found the following interesting conclusion: “We estimate that in the days beginning with Tiger Woods’ recent car accident and ending with his announced ‘indefinite leave’ from golf, shareholders of companies that Mr. Woods endorses lost $5-12 billion in wealth.” They give us this chart:

Felix Salmon already points out obvious problems. Here’s what I notice. From the paper:

“We weight the returns proportionally by the market value of each parent company (see Table 1). So, TLC Vision has only a small effect on the losses felt by shareholders because it is very small, while PepsiCo (Gatorade) has a very large effect because it is worth $90 billion.”

So for the “Big Three”, the dotted green line above that is also included in the other two lines, we have Nike, EA and PepsiCo. PepsiCo is $95 billions market cap, EA $6 billion, and Nike $32 billion. So because of the weighting, these results are driven in large part by movements in PepsiCo stock price.

And sure enough, PepsiCo took a hit in its EPS estimates for 2010 in order to focus more on investments in China, and this happened to fall right around the time the chart above takes a nosedive. From Yahoo Finance:

(December 9th) Shares of PepsiCo Inc. declined on Wednesday after the world’s second-largest drink company trimmed its fiscal 2009 outlook because it is spending more to invest in developing markets such as China….The stock declined $2.39, or 3.8 percent, to $61.09 in midday trading….

PepsiCo…said Tuesday that 2009 sales will rise 5 percent and earnings per share will climb between 5 percent and 6 percent. Previously, PepsiCo expected both profit and sales to rise by a percentage in the mid-to-high single digits. The new outlook puts 2009 adjusted earnings per share between $3.86 and $3.90. Analysts surveyed by Thomson Reuters predict earnings of $3.72 per share.

And a quick peak at a current chart of all three stocks shows that PepsiCo has kept this lower value while the other two have bounced back (it’s worth noting that PepsiCo has half the vol of ERTS). So we really need to see this with this earnings announcement taken out (or corrected for?). It’s telling, as Felix noted, that Accenture hasn’t taken a hit even though they had the most invested.

So my guess is that this is driven by an earnings announcement by Pepsi. Isn’t it great that sometimes fundamentals actually drive stock prices, instead of mathematical algorithms programmed to bet against each other and whatever headline is on tmz in a given day?

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6 Responses to How much did Tiger Woods cost shareholders?

  1. sraffa says:

    It’s always good to wait a few days to see what kind of criticisms come up. The blogosphere seems to move fast…

    I don’t totally see why the Tiger thing is such a negative for companies like Nike. It’s not like Tiger was a moral figure (though we do put up sports stars as role models despite all evidence to the contrary). He’s no worse at golf now, so if he didn’t take a break from golf, why should Nike care? Nike isn’t selling fidelity.

  2. Akusu says:

    Peak != peek.

    I think I’d rather see at least as much on the minus side before drawing any conclusions from this chart, especially considering you’re already pointing out how deceptive it is because of the chance encounter between Tiger’s accident and Pepsi’s plans.

  3. langpang says:

    The fundamental flaw in this study is that the concept of “Shareholder Value” has been brutally misused. How meaningful is this esoteric model that spit out the “strategically significant” evidence of the demonic destruction…?

    Please visit my post on this topic at

    http://flatwurld.blogspot.com/2010/01/crouching-tiger-losing-value.html

  4. Pingback: Tiger Woods Study Mulligan « Rortybomb

  5. Pingback: Did Tiger Woods Cost Shareholders $12 Billion? - The Numbers Guy - WSJ

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